Xero budgets and forecasting: The Big ‘What If?’
Ready to dig deep into your business numbers? Xero has some of the best tools out there to help you look forward in your business using hard facts and data.
With the ability to manage multiple budgets, you can get creative with your ‘what if’ scenarios to give you real financial insight, and a clearer picture of your business reality – and potential.
Here are a few approaches you can use to get started:
Get creative with forecasting
There are various tools in Xero you can use when you’re forecasting numbers; inputting fixed increases or percentage increases is a great place to start. For example, you might want to create a ‘what if?’ scenario based on an increase in your sales by 2% every month for the rest of the year.
You can use these numbers to create and save multiple different budgets within Xero.
Or maybe you’re considering investing in new team members? You could project what you believe your sales might be as a result. How might the numbers look over the course of a year?
Couldn’t you just do that in Excel?
Yes. But you’ll miss out on two key features; first, any budgets you have in Xero you can run a budget variance report for the month and year to date. You can actually run the report and select which budget-scenario you want the variance to reflect.
Second, Xero gives you more flexibility to create a hybrid report – one that gives you the actuals, to date, and the budget going forward. Excel wouldn’t allow you to select different budgets to be used in one hybrid report – it’s a feature that just isn’t there.
Essentially, Xero gives you greater scope and makes it easier to try out different scenarios so that you can project what your year-end figures will look like given all the possible changes in your business.
Try these ‘what if?’ budgets for size
Three simple and highly effective budgeting scenarios my clients are using are:
What if we…
- Increase everything by 10%
- Shoot for the stars and hit the stars – what would the figures look like?
When you have a definite idea of the trajectory you’re on, you can use the multiple budgets to see how your progress is looking based on the facts.
I appreciate there’s a lot of software out there, including Excel, that you can use to put these things together. But there’s nothing to rival Xero’s capabilities to give you the real-time chance to compare what your budget says to your actuals.
Walking my talk.
What I get most of my clients to do – and the approach that I’m using successfully in my own business – is to have one solid budget; the one that you believe will actually transpire. I’ll call this the ‘most likely to happen’ scenario (for want of a more technical term!)
As you go along, you will flex that budget and amend it for where you’re at.
At Meades, the process looks like this:
- We set a budget in March, and kick off in April
- In September, enough time has passed to get an accurate picture of any business changes
- We can then take a sensible look over the last six months and ask “what have we learnt?”
- Based on the facts, we’ll be in a better position to plan for the next six months.
You might find it helpful to implement a monthly review, depending on the volatility of your business, but this works for us. We’re working hard as a team, keeping an eye on the money we’re spending and what we’re spending it on, and we’re consistently asking “What if?”.
Having all of this information in Xero budgets enables me to actually plan my business and finances with absolute precision. It doesn’t half make you feel good when you can see exactly what’s going on in your business – and what’s likely to happen in the future.
Ready to make the most of Xero’s budget features for your business?